Head scratcher, Venture

Reuters probe spotlights a conflict of interest between biotech investor F-Prime and giant Fidelity

Reuters has done an in-depth spotlight of F-Prime Capital Partners, a prominent biotech venture outfit owned by the billionaire Johnson family, which also founded and manages the mammoth mutual fund Fidelity Investments. The news service concludes that F-Prime’s role in a long lineup of biotech companies blocked Fidelity’s participation in some lucrative deals, while leaving the mutual fund to play a valuable role bolstering the stock F-Prime was able to grab at a bargain price.

And it all adds up to a giant conflict of interest, according to Reuters, which played out at the expense of Fidelity’s investors.

The Reuters story, by Tim McLaughlin, uses the Ultragenyx IPO $RARE as a case book example of the conflict, and how it has cost Fidelity’s investors.

F-Prime, which changed its name last fall from Fidelity Biosciences after merging with the tech VC arm, invested $11 million in  Ultragenyx, and SEC rules prohibiting affiliated groups from investing in the same companies blocked Fidelity from jumping in on the pre-IPO deal. The mutual fund, though, did invest in Ultragenyx after it went public, paying a big premium after F-Prime got in on the ground floor.

The Reuters piece goes on to illustrate their story with many more biotech investments that played out the same way, including F-Prime’s investment in Adaptimmune, a UK company involved in immuno-oncology work.

“It’s hard to imagine a clearer corporate conflict of interest,” Wake Forrest law professor Alan Palmiter told Reuters. But others add that there’s nothing at all illegal about the arrangement.

Fidelity execs declined to be interviewed by Reuters, but insisted that they were abiding by the law in all their investing practices.

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